4 ms·

I see a lot of commentary saying that these pay cuts are perfectly rational, because “of course” new hires would be given different rates depending on their cos

I see a lot of commentary saying that these pay cuts are perfectly rational, because “of course” new hires would be given different rates depending on their cost of living. But for a purely remote firm, why would a cost-of-living adjustment exist at all? In a pre-COVID job market with physical offices, obviously you need to pay higher rates for the same quality of employee in a major city. Someone must be hired, and the only available applicants are paying high rents, so the firm is forced to pay more if they want their offers accepted. Supply and demand. But if the firm is purely remote, why tolerate this? Ignoring the issue of pay cuts for moves, why pay $200K for someone in SF instead of $100K for someone just as good in Pittsburgh? If there were no friction to hiring/firing, and no difference in employee quality by location, the rational strategy would not to set wages based on the local cost-of-living. The wages should be set at the replacement cost of the labor. The firm receives no benefit from the employee choosing to live somewhere expensive. They should simply pay the same rate everywhere, and each employee can choose their city based on their own values and ability to pay rent. My personal theory is that this is the scenario that many newly-remote-only firms are now in. They don’t want to pay employees different rates based on location, but their workforce is nonetheless mostly in an expensive city and expects to be paid accordingly, as per pre-COVID norms. What the firm would like to do is reduce wages across the board, but doing so would spark a backlash from workers who suddenly can no longer make rent. Thus they create the fiction of downward CoL adjustments, which only made sense pre-COVID, to concentrate the negative effects on the workers most willing to endure them — the workers suddenly paying less in rent. If remote-only remains permanent, firms will eventually fire or decline to replace staff in expensive cities, as the same work can be done cheaper elsewhere, until reaching an equilibrium where all workers are paid less and the firm no longer cares where they live.

cameldrv 6y ago
Also these companies may not want to work remotely in the long term. If they thought remote working was just as effective, presumably they would have done it before. If employees move away, and the company calls everyone back into the office at some point, a good portion of the workers that have moved will quit. In a sense, paying them the SF rate even though they're remote is sort of paying them to be "on reserve."
gnicholas 6y ago
I agree in general and actually wrote a similar comment regarding the pressure that will nudge companies in the direction of turnover in favor of remote/cheaper employees. The only thing I'd push back on is > The firm receives no benefit from the employee choosing to live somewhere expensive They do benefit if there is a critical mass of employees in the same location and can have in-person meetings. There are definitely some industries/roles in which being physically together creates a competitive advantage. There are also benefits to time zone proximity, though these tend to be weaker (and it can be advantageous to have round-the-clock coverage).
benhurmarcel 6y ago
From my point of view, the reason is that it's not a cost-of-life adjustment, it's a market rate adjustment. Companies pay a worker what is necessary for him to stay working for them. Even a remote-first company is in competition with on-site companies when it comes to hire/keep workers. So they need to pay the local market rate for each worker, otherwise he'll go work for someone else in his area. In the same way, they can afford to pay less to a worker moving to an area with a lower market rate, because he won't find a better alternative without moving.
webmaven 6y ago
> But if the firm is purely remote, why tolerate this? Ignoring the issue of pay cuts for moves, why pay $200K for someone in SF instead of $100K for someone just as good in Pittsburgh? Well, I guess it depends on exactly how fungible you think employees are. If you set a lower ceiling on the salary for a position, you're more-or-less excluding many of the largest concentrations of available labor from consideration. For that matter, for more senior positions, you're possibly excluding the candidates that have the most relevant experience (depending on your industry) wholesale. > The firm receives no benefit from the employee choosing to live somewhere expensive. The firm may receive some benefit from the employee being embedded in a community that has a high concentration of practitioners, but that's a bit speculative. When it comes to engineering (and software engineering in particular) many businesses are not shopping for the most cost-effective labor per-se, but for the best labor they can afford (or so they think). There are a bunch of reasons for this, some of which are based on myths or misunderstandings, but what it comes down to is that so long as there is an extant belief that better candidates are clustered in particular regions, you'll see a salary premium for candidates located there.

cameldrv 6y ago

Also these companies may not want to work remotely in the long term. If they thought remote working was just as effective, presumably they would have done it before. If employees move away, and the company calls everyone back into the office at some point, a good portion of the workers that have moved will quit. In a sense, paying them the SF rate even though they're remote is sort of paying them to be "on reserve."

gnicholas 6y ago

I agree in general and actually wrote a similar comment regarding the pressure that will nudge companies in the direction of turnover in favor of remote/cheaper employees. The only thing I'd push back on is > The firm receives no benefit from the employee choosing to live somewhere expensive They do benefit if there is a critical mass of employees in the same location and can have in-person meetings. There are definitely some industries/roles in which being physically together creates a competitive advantage. There are also benefits to time zone proximity, though these tend to be weaker (and it can be advantageous to have round-the-clock coverage).

benhurmarcel 6y ago

From my point of view, the reason is that it's not a cost-of-life adjustment, it's a market rate adjustment. Companies pay a worker what is necessary for him to stay working for them. Even a remote-first company is in competition with on-site companies when it comes to hire/keep workers. So they need to pay the local market rate for each worker, otherwise he'll go work for someone else in his area. In the same way, they can afford to pay less to a worker moving to an area with a lower market rate, because he won't find a better alternative without moving.

webmaven 6y ago

> But if the firm is purely remote, why tolerate this? Ignoring the issue of pay cuts for moves, why pay $200K for someone in SF instead of $100K for someone just as good in Pittsburgh? Well, I guess it depends on exactly how fungible you think employees are. If you set a lower ceiling on the salary for a position, you're more-or-less excluding many of the largest concentrations of available labor from consideration. For that matter, for more senior positions, you're possibly excluding the candidates that have the most relevant experience (depending on your industry) wholesale. > The firm receives no benefit from the employee choosing to live somewhere expensive. The firm may receive some benefit from the employee being embedded in a community that has a high concentration of practitioners, but that's a bit speculative. When it comes to engineering (and software engineering in particular) many businesses are not shopping for the most cost-effective labor per-se, but for the best labor they can afford (or so they think). There are a bunch of reasons for this, some of which are based on myths or misunderstandings, but what it comes down to is that so long as there is an extant belief that better candidates are clustered in particular regions, you'll see a salary premium for candidates located there.